Mobile phones have transformed banking in Africa and now they might do the same for insurance. That?s the hope of BIMA, a micro-insurance company providing low-price cover via mobile networks to 4m customers in Africa and Asia, and adding 400,000 new subscribers a month.
Founded 18 months ago, the Swedish company on Thursday announced $4.25m of new investment from the Mauritius-headquartered LeapFrog Investments, which calls itself the world?s largest investor in insurance for emerging market consumers.
Just as M-pesa, launched by Safaricom in Kenya in 2007, made money transfers and deposits available to the masses, the mobile platform could open up a vast, untapped insurance market. Research by Lloyd?s suggests the potential for 1.5-3 billion new policies among low-income consumers globally, should suitable products be made available.
?There is huge demand from consumers for low-cost insurance,? says BIMA chief executive Gustaf Agartsson, ?but nobody had figured out how to access them yet. In the countries we capture, there is usually 70 per cent mobile penetration, but insurance penetration is below 5 per cent?.
?Major insurers know growth will come from emerging markets, but they have focused on upper income groups and don?t know how to develop a product costing a few dollars. What is the distribution channel? It?s too hard to build an agent network,? Andrew Kuper, president of LeapFrog, told beyondbrics.
The model devised by BIMA is to market insurance products through mobile network operators. Customers can pay as little as 20 cents to $6 a month for cover, which is collected when they top up their airtime.
Products on offer include life insurance, accident insurance and hospitalisation insurance, and BIMA hopes to eventually release corporate products aimed at small enterprises. The amount of cover is in the range of a $150 to a few thousand dollars.
The technical system is designed and managed by BIMA, which also provides underwriting and claims administration. Though prices are low, the high volumes enable profitability, BIMA says.
So what do the mobile networks gain? As Kuper explains, ?Network operators said their biggest problem is that 99 per cent of their customers are pay and go, and very disloyal. The customer walks around with three SIM cards, and the MNO [mobile network operator] has to fight a price war.
?When airtime adds to their insurance, customers turn from price-conscious pay and go customers to loyal subscribers. The mobile operator gets something they really need.?
The company currently operates in Ghana, Tanzania, Senegal, Mauritius, Bangladesh and Sri Lanka, and with the customer base growing rapidly they hope to move further afield, with Nigeria potentially the next target, BIMA said. Staffing has grown rapidly from 150 to 500 in less than two years.
BIMA was unwilling to divulge financial information, but the investors are giving it a vote of confidence. Alongside the new funding from LeapFrog, the holding company Kinnevik, which majority owns BIMA, has put in an extra $2.75m, more than doubling its prior investment. LeapFrog was cautious in selecting the company, Kuper says, but confident in its commercial prospects.
?Mobile payments have taken off, but mobile insurance is nascent. A number of players are trying it and we looked at them, but BIMA is ahead of the pack in terms of scale and innovation.
?LeapFrog is an investment fund, we seek returns for the likes of JP Morgan, so if they weren?t profitable, they wouldn?t get through the door.?
They hope the technology will have social benefits too, though. Low welfare provision in developing countries can turn minor mishaps, like a short hospital visit, into a crippling financial burden. Fear of the proverbial rainy day restrains not only households but the wider economy, as would-be entrepreneurs withhold investment.
An International Labour Organisation study in Ghana found that in a sample of farmers, those who were assigned insurance cover increased investment in their farms, sometimes by up to 65 per cent, while those who received credit exhibited relatively little change.
?What people don?t talk about with insurance is the enabling factor,? says Kuper. ?Your whole sense of risk changes.?
Related reading:
Kenya to India: exporting the mobile money model, beyondbrics
Kenya elections: take cover, beyondbrics
Beyond the family boardroom, FT
Source: http://blogs.ft.com/beyond-brics/2013/02/21/after-mobile-banking-mobile-insurance/
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